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Money Markets Instruments

Money Market Securities in India
The money market includes instruments for raising and investing funds for periods ranging from one day up to one year. Money market securities consist of repos/reverse repos, CBLOs ( collateralized borrowing and lending obligations),certificates of deposits, treasury bills, and commercial paper. All these securities are issued at a discount and redeemed at par, and are zero coupon in structure.  Money markets also include inter-bank call markets that are overnight lending transactions between banks, inter- bank terms markets that  are long term deposits between banks, and interoperate deposits, which are short term lending between companies. These transactions do not involve creation of a debt security and are therefore not included here. The Participants in the money market include banks, primary dealers, financial institutions, mutual funds, provident and pension funds, companies and the government. The purpose of the money market is to enable institutions and companies  to meet short term funding needs by borrowing and lending from each other.



Repos / Reverse Repo
A repo is a transaction in which one participant borrows money at a predetermined rate against the collateral of eligible security for a specified period of time. A reverse repo is a lending transaction; a repo in the books of the borrower is a reverse repo in the books of the lender. Eligible Collateral for repos and reverse repo are central and state government securities and select corporate bonds.

Collateralized Borrowing and Lending Obligation (CBLO)
A Collateralized Borrowing and Lending Obligation (CBLO) is an instrument used to lend and borrow for short periods, typically one to three days. The debt is fully secured against the collateral of government securities. CBLO is a standardized and traded repo.

Certificates of Deposits
Certificates of Deposits (CDs) are short term tradable deposits issued by banks to raise funds. CDs are different from regular bank deposits because they involve creation of securities. This makes the CDs transferrable before maturity. However , actual  trading in CDs is extremely limited with most investors preferring to hold then to maturity.

Treasury Bills
The central government borrows extensively in the money market for its daily operations through the issue of short term debt securities called Treasury Bills( T-bills). T-bills are issued for maturieties of 91 days ,182 days and 364 days. They are issued through an auction process managed by the RBI and listed soon after issue. Banks , mutual funds, insurance companies, provident funds, primary dealers and FIs bid in these auctions.

Commercial Paper

Companies and institutions raise short –term funds in the money market through the issue of commercial paper (CP).Though CPs are required to have a credit rating, they are unsecured corporate loans with a limited secondary market. They can be issued for various maturities of up to 364 days, but the 90 day CP is the most popular. 

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